How to Set Up Nest Pension Scheme on Xero

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Setting up a NEST pension scheme on Xero is a common task for UK employers once they reach their automatic enrolment duties. On paper it sounds simple, but in practice I see many businesses struggle because they do things in the wrong order, miss key settings, or assume Xero and NEST talk to each other automatically. They do not.

The good news is that once it is set up correctly, the process is straightforward and repeatable. In this guide I will walk you through how to set up a NEST pension scheme on Xero step by step, explain what needs to be done in NEST first, how to configure payroll settings in Xero, and how to avoid the most common mistakes. By the end, you should understand not just how to set it up, but how the two systems work together in practice.

This guide is written for UK employers running payroll through Xero and using the government backed workplace pension provider NEST.

What NEST and Xero actually do

Before jumping into setup, it is important to understand the roles of each system.

NEST:

• Is the workplace pension provider

• Holds employee pension pots

• Calculates contributions based on pensionable pay

• Requires contribution schedules and payments

Xero:

• Runs payroll

• Calculates pension contributions

• Produces pension reports

• Does not send money or data directly to NEST

Xero does not automatically submit contributions to NEST. You must export data from Xero and upload it to NEST.

Once you understand that separation, the setup makes much more sense.

What you need before you start

Before setting anything up in Xero, you need a few things in place.

You will need:

• An active NEST employer account

• Your NEST employer ID

• Your NEST group name or scheme details

• Your company payroll set up in Xero

• Employees added to Xero payroll

If you do not yet have a NEST account, you must register with NEST first. You cannot complete the Xero setup without it.

Step one, set up your NEST employer account

If you have not already done so, the first step is to set up your employer account with NEST.

When setting up NEST you will:

• Register as an employer

• Provide company details

• Choose contribution levels

• Set a payment source

• Set up groups if needed

Most small employers will use the standard qualifying earnings basis unless advised otherwise.

Once registration is complete, NEST will issue you with:

• A NEST employer ID

• Access to the employer dashboard

Keep these details safe. You will need them later.

Step two, check your auto enrolment duties

Before running payroll, make sure you understand your automatic enrolment responsibilities.

As an employer, you must:

• Assess employees each pay period

• Enrol eligible employees

• Provide statutory communications

• Pay employer contributions

• Submit contributions to NEST

Xero helps with assessment and calculations, but legal responsibility remains with the employer.

Step three, enable payroll in Xero

If payroll is not already enabled in Xero, you need to activate it.

In Xero:

• Go to Settings

• Select Payroll settings

• Choose UK payroll

You will need to confirm:

• Pay frequency

• PAYE reference

• Accounts for wages and deductions

Once payroll is active, you can move on to pension setup.

Step four, set up a pension scheme in Xero

Now you can create the NEST pension scheme within Xero.

In Xero payroll:

• Go to Payroll

• Select Settings

• Choose Pension schemes

• Click Add pension scheme

You will then be asked to complete the scheme details.

Step five, enter the NEST scheme details

When adding the pension scheme in Xero, you need to input the correct information.

Typical fields include:

• Scheme name, for example NEST Workplace Pension

• Provider name, NEST

• Scheme type, Auto enrolment

• Pension calculation method

• Employee and employer contribution rates

You should match these exactly to your NEST settings.

For most employers:

• Employee contribution is 5 percent

• Employer contribution is 3 percent

• Contributions are based on qualifying earnings

If your scheme uses different rates or salary sacrifice, this must be reflected correctly.

Step six, choose the correct earnings basis

This step is critical and often done incorrectly.

In Xero you must choose how pensionable earnings are calculated.

Common options include:

• Qualifying earnings

• Total earnings

• Basic pay only

For NEST, most employers use qualifying earnings unless they have set up an alternative arrangement.

If Xero and NEST do not match, contribution calculations will differ, leading to errors and corrections.

Step seven, link the pension scheme to employees

Once the scheme is set up, you need to assign it to employees.

For each employee:

• Go to the employee profile

• Open the Employment tab

• Select Auto enrolment

• Assign the NEST pension scheme

Xero will then assess the employee based on age and earnings.

Xero will automatically:

• Enrol eligible employees

• Postpone where applicable

• Track opt ins and opt outs

You must still ensure statutory letters are issued.

Step eight, run payroll and review pension calculations

After assigning the pension scheme, run a test payroll.

Check carefully:

• Employee pension deductions

• Employer pension contributions

• Total pension amounts

• Pensionable earnings figures

This is your opportunity to spot issues before anything is reported to NEST.

If figures look wrong, stop and review the scheme settings before proceeding.

Step nine, generate the NEST pension report in Xero

Once payroll is finalised, Xero produces pension reports.

To access them:

• Go to Payroll

• Select Reports

• Choose Pension contribution report

Xero allows you to export this report in a format compatible with NEST.

This report contains:

• Employee details

• Contribution amounts

• Pay period information

This file is what you upload to NEST.

Step ten, upload contribution data to NEST

Log into your NEST employer account.

In NEST:

• Go to Contribution schedule

• Upload contribution file

• Review the data

• Confirm the schedule

NEST will then show:

• Total contributions due

• Payment deadline

• Any warnings or errors

You must complete this step every pay period.

Step eleven, pay NEST contributions

After submitting the contribution schedule, you must pay NEST.

Payment is usually made by:

• Direct Debit

• Bank transfer

You must ensure:

• Payment is made by the NEST deadline

• Amounts match the contribution schedule

Late or incorrect payments can lead to compliance issues.

Ongoing payroll and pension process

Once set up, the ongoing process each pay period is:

• Run payroll in Xero

• Finalise payroll

• Export pension report

• Upload to NEST

• Pay contributions

Xero does not automate the upload or payment, so this remains a manual step.

Common mistakes I see with NEST and Xero

Over the years, I see the same issues repeatedly.

Assuming Xero submits to NEST automatically

It does not. Uploading is manual.

Using the wrong earnings basis

This causes contribution mismatches and corrections.

Forgetting to assign the scheme to new employees

New starters must be added to the pension scheme.

Not checking payroll reports

Errors are often visible before upload but ignored.

Cancelling payroll access too early

If you close Xero before final submissions, recreating data is painful.

Salary sacrifice and NEST on Xero

If you use salary sacrifice, setup is more complex.

You will need to:

• Set up salary sacrifice deductions in Xero

• Adjust NIC treatment

• Ensure NEST settings reflect sacrifice arrangements

This is an area where I strongly recommend professional advice, as errors can affect tax and employee take home pay.

Record keeping and compliance

You must retain records for auto enrolment compliance.

This includes:

• Pension reports

• Contribution schedules

• Employee communications

• Opt in and opt out notices

Xero helps with reports, but you remain responsible for compliance.

What Xero does not do for NEST

It is important to be clear on the limits.

Xero does not:

• Submit contributions automatically

• Pay NEST directly

• Manage opt out refunds in NEST

• Replace your legal duties as an employer

Xero is a payroll tool, not a pension administrator.

How I advise clients setting this up

When I help clients set up NEST on Xero, I focus on doing it right the first time.

My usual approach is:

• Confirm NEST scheme settings first

• Mirror those settings exactly in Xero

• Test payroll before live runs

• Document the monthly process

Most problems arise not from complexity, but from assumptions.

When to get help

You may want support if:

• You are unsure about earnings definitions

• You use salary sacrifice

• You have irregular pay

• You have multiple pay frequencies

• You are dealing with backdated enrolments

Fixing pension errors later is far more time consuming than setting it up correctly.

Final thoughts

Setting up a NEST pension scheme on Xero is not difficult, but it does require care and attention to detail. The key is understanding that Xero calculates pensions, while NEST administers them, and the link between the two is manual.

Once the scheme is configured correctly and the process is understood, ongoing payroll becomes routine. In my experience, employers who take the time to get the setup right rarely have issues. Those who rush it often spend months correcting avoidable errors.

If you are setting this up for the first time, slow down, check each step, and do not assume anything is automatic. A solid setup now will save you time, cost, and stress in the long run.

You may also find our guidance on how to reconcile in xero and what is xero helpful when exploring related accounting software tasks. For a broader overview of software options and setup guidance, you can visit our accounting software hub.